Give us cheap power, Piyushji PDF Print E-mail
Monday, 25 July 2016 01:09
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The reason why consumers don't get cheaper power is, 13 years on, Electricity Act 2003 not implemented


Not only have we been told India is a surplus power nation, those on Twitter will see a tweet from power minister, Piyush Goyal, everyday on how much electricity is available on various power exchanges, and at what price. On Thursday, for instance, he tweeted “Afternoon power check: 2,377 MW available at R2.17/unit for states to buy”—a sample of his tweets over the past few weeks have been reproduced here for ready reference.

If that much electricity is available at so low a price, even after you add on wheeling and other charges, the question is why this power is not available to consumers who are, for instance, paying R7-8 per unit to a BSES or an NDPL in Delhi? That too will happen, Piyush Goyal will tell you, once he is is able to talk to the state governments and also pass necessary amendments in the Electricity Act which will allow for the creation of just a carriage company, which owns the power lines going into the premises of customers and charges a fee for transporting electricity—in jargon, this is called separating carriage from content. In other words, in a city like Delhi, for instance, a BSES will have a power distribution company and also one that owns the electricity lines that go into the homes of consumers. Once this is done, any citizen can buy the power Goyal tweets about, get into an agreement with BSES, to transport the power—BSES will probably have some back-to-back agreement with other transporters like Power Grid—and get the cheaper electricity. Apart from the wheeling and other charges that the Delhi Electricity Regulatory Commission (DERC) will set, there will also be a cross-subsidy surcharge to take care of the fact that higher-paying customers will be leaving BSES—the money is to allow BSES to continue to subsidise other sets of consumers, and the idea is to keep reducing this cross-subsidy surcharge every year.

Apart from the fact that it is not clear by when Goyal will be able to get the amendments to the Electricity Act through, it is also not clear if he is giving a firm deadline to states to implement this. Because, if he isn’t, it’s almost a certainty the states will not implement it. While no one can doubt Goyal’s intentions, what’s not clear is why he needs to reinvent the wheel since most of these provisions are there in the Electricity Act of 2003 itself. Goyal’s new plans, it is true, are a step or two ahead of what the Electricity Act of 2003 had envisaged, but if even this first step has not been taken, where is the question of taking the much bigger ones?

Section 42(2) of the Electricity Act clearly says, “The State Commission shall introduce open access in such phases and subject to such conditions… as may be specified within one year of the appointed date”—that is, this was to be done by 2014. “Open access” is what allows users to buy power from NTPC, in UP, use Power Grid’s wires to transport the power to Delhi, and then BSES’ lines to get it to your residence.

This, you could say, is left pretty much open ended, which is why, another proviso of the same Section 42 says, “Provided also that the State Commission, shall not later than five years from the date of commencement of the Electricity (Amendment) Act, 2003 provide such open access to all consumers who require a supply of electricity where the maximum power to be made available at any time exceeds one megawatt”. In other words, begin with large users such as apartment complexes, shopping malls and industrial units.

Naturally, the state governments and the electricity boards were loathe to give up their power. After all, once consumers start buying power from the exchange, the state electricity board’s ability to buy costly power—and in large quantities—will also be constrained. So, the government never implemented this section of the Act.

With the Planning Commission insisting that all those who consumed more than 1 MW of power had to, by law, be freed from the clutches of the state electricity boards—or their counterparts, the private sector discoms—the matter went to the power ministry and the law ministry in 2010.

The Attorney General GE Vahanvati said that while consumers with the demand of more than 1 MW could be considered “open access” customers—and therefore their tariffs would not be set by the regulatory commission—he said this applied only to those who specifically opted for it. This sounds like a banal distinction, but isn’t because SEBs often arm-twist customers not to leave—we won’t be responsible if the alternative power supply fails, we can’t guarantee there will be a power lines to carry the power you buy from a third party, etc.

The matter went back to the Planning Commission which pleaded its case and again, on March 31, 2011, Vahanvati wrote,“Whether a state regulatory commission can continue to regulate the tariff for supply of electricity to any consumer of 1 MW above—No, for the reasons set out here in above”. After processing, the matter was signed off by the then law minister M Veerappa Moily on April 13, 2011.

In other words, even if, say, a Maruti Udyog chose not to move away from the Haryana utility that supplied it power, the tariff would not be decided by the regulator, but would be bilaterally negotiated—and, in that negotiation, the rates that Goyal tweets about regularly would be factored in.

Naturally, if costs couldn’t be loaded on to a Maruti Udyog, the regulator would have to look at charging other sections more economic rates and force the SEBs/discoms to reduce ATC losses.

In the event, while Goyal’s carriage-and-content plan can go on as scheduled, he simply has to implement the Electricity Act in all seriousness and that includes ensuring open access is allowed for all customers within a few years, but for the for the 1 MW people immediately—once that is done, most suppliers will automatically appear since a consumer will have a choice of buying from BSES/NDPL/Adani Power/NTPC etc.

Getting in more suppliers without open access, on the other hand, is largely a theoretical exercise since electricity lends itself to a natural monopoly. WhenNarendra Modi was campaigning in 2014 and promised to bring down electricity prices as had been done for telecom, he had this open access model of the Electricity Act, 2003 in mind.

Let’s begin now, even though 13 years have been lost.

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Monday’s column by Sunil Jain in The Financial Express (goo.gl/T2L1XT) raised the question of open access of electricity where it was claimed that power prices are high because open access is not implemented or promoted. To my mind, this raised a fundamental question—whom should the Government keep in mind while formulating and implementing policy in the country? The question for the power sector is: Who is the “consumer”? In my view, the consumer includes not only the high-end commercial and industrial consumers but also the general public and especially, the poor farmers who toil day and night to feed the country. The latter too need to be supported, and the job of a policymaker is to balance the interests of all segments of society.

Competition as a policy is desirable for improving efficiency and extending resultant gains to the consumers. The Electricity Act, 2003, and the subsequent policies of the Government do recognise this fact, and several actions have been taken to further promote competition in the entire power sector, while increasing access to affordable and reliable electricity for the poor of the country. We have multiple players in generation, transmission, trading and distribution today and this has been possible because of the facilitative framework created by the government. We have gradually moved from a state of deficit scenario to a stage where we have adequate availability of power for meeting the demand.

In fact, this intent of the government is clearly outlined in the National Tariff Policy, 2016, where it has given guidelines for providing open access to customers above 1 MW in a particular time period and also outlined the determination of appropriate charges like cross subsidy surcharge, additional surcharge and stand by charges, to ensure that a fair balance is achieved between the financial viability of utilities and embedded customers who continue with the utilities. Many state regulators are reviewing existing open access regulations in view of this policy to make this process more equitable. In Parliament, we have also introduced an Amendment to the Electricity Act, 2003, seeking to further encourage competition in power supply for consumers at large; however, it needs consensus as we are part of the federal polity.

We must not forget that competition and the consequent efficiency gains make sense only if the fruits reach the last man on the street. Socio-economic realities of India cannot be ignored, which necessitate cross-subsidisation between different consumer categories to protect the interests of the vulnerable sections of the society, namely, the farmers and the poor.

Open access is one of the cornerstones of competition and the government has been, and remains, keen on encouraging it. Since the power market is still evolving, the law also carves out certain conditionalities while allowing open access. It talks about levy of cross-subsidy surcharge and also additional surcharge to help discoms recover their stranded costs. Some large open access consumers also expect the discoms to supply them power whenever they are unable to secure cheap power from the market. This results in additional costs for maintaining extra capacity to meet this demand while losing out on helping the poor through cross-subsidy charges. Then, there are instances of consumers switching between discoms and open access at will. The distribution companies who are responsible for supplying power to all consumers, including the poor and the farmers, have to be compensated for the costs they incur for supply of power to all and being the supplier of power of last resort.

States like Maharashtra and Gujarat have highlighted the instances of misuse of open access and captive status of an industry to avoid payment of cross-subsidy surcharge. These are distortions which have an adverse effect on the poorer consumers who are forced to purchase from their existing discoms. Thus, in open access, few consumers can shift in and out of captive and state discoms’ power supply net, thus demonstrating that well-intentioned and well-crafted policy can be misused.

This has highlighted the need to define rules which are non-discriminatory. It requires that there should be a definite period for which open access can be allowed and a consumer can fall back upon the discom for supply during this period only on payment of standby charge, which should adequately compensate the discom on account of providing power on contingency to such consumers.

The Union government has provided an ecosystem of efficiency, transparency and accountability. In the last two years, we have increased inter-state transmission capacity along with increased generation, coupled with easing of logistics and fuel constraints. This has made it possible for power to be traded at such low rates realising the vision of One Nation, One Grid, One Price at the power exchanges. Through the Vidyut PRAVAH app this information is continuously being made available, so that states are encouraged to buy power to provide electricity at very low rates.

Reforms are not only about creating opportunity of open access. It is also about enabling the stakeholders to be part of competition and that is why the Union government came up with the Ujwal DISCOM Assurance Yojana (UDAY) scheme for permanent resolution of all issues ailing discoms and helping them make a transition to sustainable profit-making entities. Let us not forget that duty of any caring government is to make “24X7 Power for All”, a reality, not only for cherry-picked large consumers but for the common man, the poor man, the farmer on an equal footing.

The author is a joint secretary in the ministry of power

Sunil Jain replies:

None of this addresses the issue I have raised of the failure to introduce competition in electricity supplies—doing this through ‘open access’ was mandated in Electricity Act of 2003 but, as the rejoinder acknowledges, little has been done so far and the future timeline is unclear. Confusingly, the power ministry rejoinder avers by ‘open access’ but then slams it on grounds it is being abused. It is odd that the ministry should be talking about abuse of ‘open access’ since the Act envisages surcharges to take care of this—indeed, the surcharge is what allows different categories of users to continue to

be subsidised even as others move out. It is also not clear how the ministry plans to get more players at the distribution level in order to increase competition—these are the amendments being talked of—if it is not even ready to bring in ‘open access’ for big consumers to start with, and for all, over time. Lowering costs for ‘cherry-picked large consumers’, by the way, is critical if Make-in-India manufacturing is to flourish.

Jyoti Arora

Last Updated ( Tuesday, 26 July 2016 03:52 )

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